Impacts of Ancillary Service Demand Curves ERCOT July 12, 2019

1. Impacts of Ancillary Service Demand Curves ERCOT July 12, 2019

2. ASDC Impacts to AS Deployment • Spreadsheet review • KP 1.5 Ancillary Service Demand Curves concepts • Replicate ORDC and PBPC outcomes • Manual deployment of Non-Spin and Removal of Non Spin Floor • RRS deployments interaction with ASDCs • Principles review

3. RTC Simulation Spreadsheet updates • Changes to make spreadsheet consistent with decisions at the Commission • VOLL $9,000 $/MWh • Max price on ASDCs $9,000 $/MWh • SWOC $2,000 $/MWh • AS Demand Curve and Aggregate Demand Curve is approximated using 2020 Summer mu and sigma and historical RTOLCAP and RTOFFCAP values between 2014 and 2018 and Power Balance Penalty Curve (PBPC).

4. With RTC and AS demand curves, the cost of reserves (AS) is already included in the LMP. • SCED is still solving for energy. • However, the optimization is also determining the amount of AS to award and to which resources. • Because SCED is now solving for both, the cost of trying to meet both needs directly impacts the cost of serving an additional MW. • The energy cost of the resource • The additional cost of getting the AS (or the penalty of being 1 MW more short on AS) Note: Additional material can be found in a larger presentation given by Webex 4.22.19 posted here: http://www.ercot.com/content/wcm/key_documents_lists/179705/RTC_Orientation_Materials.pptx

5. For RTC, each AS product needs a separate AS demand curve. The methodology for deriving these AS demand curves is currently under discussion, but it could look something like the curves below; which are the curves represented in the simulation spreadsheet.

6. Manual Non-spin deployments interaction with ASDCs • Manual Deployment of Non-spin will occur the same under RTC as it does today! • RTC operations will make Non-spin available at a price determined by available offers and the ASDC for Non-spin. • Under scarcity conditions, energy to be served is given priority and smaller amounts of Non-Spin would be procured — effectively similar to the release of Non-spin to SCED in current market. This results in scarcity pricing through the ASDC. • Online Non-spin capacity available to RTC would be subject to AS Imbalance settlement (similar to today under ORDC). Remember, RTC will maximize the profit for each Resource when determining energy vs. AS award. • No system-wide pricing adjustment (NPRR626) will be made for manual Non-spin deployments which is consistent with what we do today.

7. Removal of Non-Spin AS floor The administrative price floor for Non-Spin will be replaced by prices determined from awarded offers and the ASDC for Non-Spin. Protocol reference that can be removed: 6.4.4.1 Energy Offer Curve for On-Line Non-Spinning Reserve Capacity (1) The following applies to Generation Resources that a QSE assigns Non-Spinning Reserve (Non-Spin) Ancillary Service Resource Responsibility in its COP to meet the QSE’s Ancillary Service Supply Responsibility for Non-Spin and applies to On-Line Non-Spin assignments arising as the result of Day-Ahead Market (DAM) or Supplemental Ancillary Services Market (SASM) Ancillary Service awards, or Self-Arranged Ancillary Service Quantity. (a) Prior to the end of the Adjustment Period for an Operating Hour during which a Generation Resource is assigned On-Line Non-Spin Ancillary Service Resource Responsibility, the QSE shall ensure that a valid Output Schedule or Energy Offer Curve for the Operating Hour has been submitted and accepted by ERCOT. The Energy Offer Curves submitted by the QSE for the capacity assigned to Non-Spin may not be offered at less than $75 per MWh.

8. RRS deployments interaction with ASDCs • RTC operations will make RRS available at a price determined by available offers and the ASDC for RRS. • Under scarcity conditions, energy to be served is given priority and smaller amounts of RRS would be procured — effectively similar to the release of RRS to SCED in current market. This results in scarcity pricing through the ASDC. • Load Resources self providing RRS in Real Time will be price takers (not re-awarded post DAM) unless we have a Load Resource opt out due to a physical inability to respond. • A manual deployment of Load Resources with an RRS award, because we have an instruction to indicate the MW amount released, will be re-procured from available, qualified offers. This will indicate a scarcity condition and prices will increase based on the ASDCs and any offers, if available • UFR responding to frequency will maintain award after recall for up to 3 hours and the ASDC for RRS would not reflect any scarcity. We anticipate the same treatment under RTC unless a telemetry point is added to signify UFR response.

9. RRS deployments interaction with ASDCs Settlement: • RRS made available to RTC would be subject to AS Imbalance settlement (similar to today).Remember, RTC will maximize the profit for each Resource when determining energy vs. AS award. • Load Resources responding to frequency, by UFR or manually, are currently charged the ORDC price adder upon deployment via AS Imbalance settlement. If no special consideration, RTC AS Imbalance will also charge the RT RRS price for deployed MW. Pricing run (626): • A manual deployment of RRS will be reflected in the RT Deployment price adder as it is today. • UFR responding to frequency is currently not reflected in the RT Deployment price adder. We anticipate the same treatment under RTC unless a telemetry point is added to signify UFR response.

10. Principle 1.5 Process for deploying Ancillary Services • Under scarcity conditions, energy to be served is given priority and smaller amounts of each Ancillary Service will be procured. This will result in scarcity prices being set by the demand curves and reflected in energy prices and MCPCs. • The administrative price floor for Non-Spin will be replaced by prices determined from awarded offers and the ASDC for Non-Spin. • Operational procedures for deploying RRS from Load Resources and Offline Non-spin remain the same.